Brazil markets rise on high hopes for economy

Brazil markets rise on high hopes for economy www.forbes.com Reuters, 01.31.03, 3:34 PM ET   By Todd Benson

SAO PAULO, Brazil, Jan 31 (Reuters) - Brazil's financial markets trekked higher on Friday as investors temporarily brushed aside fears of a war in Iraq and instead focused on an increasingly upbeat outlook for the Brazilian economy.

The country's currency, the real , gained ground against the dollar for the third straight session, firming 1.1 percent to 3.52 to the greenback.

With Friday's gains, the real ended January 0.7 percent stronger after clawing back from a 10 percent dip in the second half of the month.

Stocks also ended the week on a positive note, rising in tandem with share prices on Wall Street, but the gains weren't enough to nudge the market back into the black for the month.

The Sao Paulo Stock Exchange's benchmark Bovespa <.BVSP> index rose 1.77 percent to 10,941 points, leaving the index 2.9 percent lower than where it kicked off the new year.

"The war worries are still dogging the market, but things on the local front are looking up," said Flavio Farah, treasury director at WestLB Banco Europeu in Sao Paulo.

U.S. investment bank Morgan Stanley helped fuel the optimism. Confident that President Luiz Inacio Lula da Silva will have congressional support to pass key economic reforms, Morgan raised it recommendation late on Thursday on Brazilian bonds to outperform from market perform.

"The Morgan upgrade helped jump-start the market today," Farah said.

Another factor underpinning the market were expectations that the Lula government will raise its primary budget surplus soon in a bid to ease the country's hefty debt-to-GDP ratio, currently at 56 percent.

Finance Minister Antonio Palocci is widely expected to lift the 2003 surplus target next week above the current goal of 3.75 percent of gross domestic product, a move that could further boost investor confidence in the economic common sense of the Lula administration.

On Thursday, Brazil reported a record primary surplus of 52.4 billion reais ($14.7 billion), or 4.06 percent of GDP, putting the nation well ahead of its annual target agreed on with the International Monetary Fund.

"The market is hoping for a new target of about 4.3 percent (of GDP)," said Alvaro Bandeira, chief economist at AgoraSenior investment firm in Rio de Janeiro. "Anything in that ballpark would be very good for the credibility of the country."

While raising the surplus will likely lend support to the market, Bandeira warned that U.S. Secretary of State Colin Powell's speech at the United Nations on Wednesday could weigh heavily on prices.

Powell is expected to present evidence that Iraq is hiding weapons of mass destruction and has ties to al Qaeda to strengthen the United States' case for war.

In the stock market, winners outpaced losers by a ratio of 44 to seven, while three shares settled unchanged. Trading volume was modest, totaling 423 million reais ($120 million).

Among the day's standouts was energy company Eletropaulo <ELPL4.SA>, whose Eletropaulo announced it did not make an $85 million payment to Brazil's BNDES development bank, fueling hopes of a government bailout of the debt-ridden company, traders said.

In the liquid telecommunications sector, market bellwether Tele Norte Leste Participacoes (Telemar) <TNLP4.SA> climbed 1.89 percent to 27.00 reais.